If I renovate my rental property by doing $8000 in upgrades, I can increase rent by $200 per month. The break even is just over three years.
Looking at only cashflow, would you do these upgrades? What reno returns do you shoot for?
It depends , only if it was already becoming vacant and I had nowhere else to invest that money with a better return.
Your 3 year payoff is wrong. It’s a 40 month payoff if you assume 100% occupancy. I’d assume a reasonable vacancy rate on that rent.
I prefer to hit the tenants with a modest increases without doing any renovations. Id send a rent increase of $50-$100. If they don’t accept and move than I will renovate and go to market.
I like your answer. I also do small rent increases yearly but this tenant has said they will move with any increase. The tenant is probably a C grade (out of A, B, C, D) so for management I don’t mind if they stay or go. Also, the reno costs include materials, labor, and vacancy of a month (they just don’t include my time which is never factored in for better or worse).
Right now I don’t have alternative investments for the $8,000 but something always comes around.
What are your thoughts?